"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Monday, September 29, 2014

Here are the numbers for this past week that USDA released this afternoon:CORNThe crop retained its stellar rating at 74% rated Good/Excellent compared to last week. The recent warm, dry weather did wonders to speed along the crop towards maturity with 96% of the crop dented compared to 90% last week and 95% last year at this time. The five year average is 97%.60% of the crop is now fully mature compared to 42% last week and 60% last year. The five year average is 70%.12% of the crop has been harvested compared to 7% last week and 11% last year at this time. The five year average is 23%.

The northern tier states are behind which is the reason that traders are reluctant to keep pressure on the corn right now as they want to see the % harvested move higher ahead of any potential wetness or killing freezes. That is giving the corn some lingering weather premium.However, it should be noted that in those areas where harvest is either ongoing or has been completed, reported yields are coming in very, very strong.SOYBEANSThe bean crop actually improved slightly this past week with 72% rated Good/Excellent compared to 71% last week. The Excellent category is where the increase came from as it gained 1% to 19 from 18 the previous week.69% of the crop is now dropping leaves compared to 45% last week and 64% a year ago. The five year average is 71%.On the harvest front - 10% of the bean crop has been harvested compared to 3% a week ago and 10% a year ago at the same time. The five year average is 17%.'About the same thing on the bean harvest as for the corn - it is lagging the 5 year average in some of the more northern states in particular but yields thus far that are coming in are incredibly high.The market decided to move higher today ahead of tomorrow's USDA stockpiles report. the last number we had for old crop supplies stood at 130 million bushels. Some shorts decided to get out ahead of that number. I am not sure why anyone is especially interested in the old crop carryover at this point ahead of a carryover that is expected to be more than 3X that number but it could be some end of the quarter/month movement was involved here as well.This afternoon's progress/condition reports show crops in outstanding condition and an ongoing harvest. Traders will react to any potential for harvest disruptions or freezes but unless any sort of hard freeze comes prior to the middle of this month, at this point, I do not believe it will make much difference in the general scheme of things. We'll see as we move forward.One last thing - the corn/wheat spread continues to move against corn and in favor of wheat as it had started to do last week. I am watching wheat prices carefully to see if there is anything that might indicate a bottom is in for this market. Right now the chart is showing some decidedly bullish divergence on the RSI but the chart has not shown any confirmation of that in the form of a break over overhead resistance. A change in the handle from one of a "4" to that of a "5" might pique some interest among momentum-based buyers but for now the market is still in a bear trend undergoing some mild corrections higher.

What showed something similar in July and managed to rally about $0.40 before succumbing to another round of strong selling. It could conceivably rally to $5.00 but one would expect fresh selling to show up once again unless something had changed on the fundamental front.Strength in the US Dollar has negated a considerable portion of the downdraft in US wheat prices. Let's watch this however...( along with cattle for any sign of a blow off top which finally runs out of upside steam ). On the hogs, the report has cast a bearish pall over that complex that will linger for a while but for the time being, the cash markets remain strong and with the board at a discount to the cash, we will need to see that turn before we can any move aggressive selling in this market. Expansion is here however and is not going away anytime soon. That is good news for those of us who are getting tired of paying the proverbial arm and leg for red meat.Hey - Tuna Helper is looking pretty good right now! It's too bad beef is a perishable commodity because buying it last year and holding it would have been a helluva lot better than "stackin' gold". On second thought, I sense some real potential here for any newsletter writers who want to concoct some theories about Beef Backwardation ( notice how catching the "B and B" sounds), or Famed Cattle Insider claims Massive Beef Buying seen at Costco. How did I ever miss such an opportunity?! He could also claim that he just narrowly missed being hit by a runaway forklift driver who was moving dead carcasses at the feedlot where he was conducting undercover surveillance as part of his whistleblower activities!

Bulls in the cattle market, (both fats and feeders) have had an excellent run higher for some time. Scarce supplies coming off of back to back drought years ( 2011 and 2102) have reduced the herd significantly. Now that cattlemen are looking to rebuild their herds, on account of the incredibly cheap grain prices and sky high cattle prices, supplies are becoming even tighter as heifers are being held back for breeding purposes. Also, feeders are in hot demand and have drawn record prices at auction barns.However, it is my view that cattle longs should be careful at this point. The market looks as if it is beginning to accelerate with shorts being "butchered" ( a little word play here for fun ) and now abandoning the ship as the hedge fund longs squeeze them mercilessly.Markets undergoing this sort of internal dynamic are very dangerous if one is long. Once the last of the weak shorts are run out, they can abruptly change direction. If you are long, I would suggest you think about locking in some profits through the use of some options.With both hog and chicken numbers ramping up and with US beef so pricey and with a strong US Dollar, the demand side of this market is going to have to deal with some hefty headwinds soon enough. For now, the funds are in the driver's seat but all good things come to an end.Feeders in particular are in nosebleed territory. They closed limit up on Friday of last week and are currently locked at limit up today. This market in particular is displaying all the classic signs of a blow off run.

I still do not see any technical evidence yet of a top but I am watching very, very closely at this point.Here is the October live cattle chart. Bulls are banking on the fact that the scarcity of cattle will allow for even higher prices. Bears are of the view that increasing cattle weights and high priced beef will overwhelm demand at these levels. I am in the latter camp but am not ready to pull the trigger just yet.

Some of what we are seeing today in the livestock market is month-end and quarter-end window dressing by funds who are heavily long both markets, as well as the hogs.That negative Hogs and Pigs Report forced a limit down opening in some of the summer month contracts but funds came in and once again vigorously defended that big long position they have amassed. The hog market has been able to shrug off the report, especially in the nearby October which is being supported by surging pork prices ( end users are switching from high priced beef to pork) but one wonders how long even this month contract will be able to shrug off the broader based commodity selling trend.I am not going to put too much stock in price action in any commodity market both today and tomorrow due to Quarter end activity; nonetheless, we do want to pay close attention to the price action throughout the rest of the week in these particular markets. If cattle feeders can force packers to put higher money on the table, hedge fund longs will be able to continue squeezing the shorts. If feedlots blink first, hedge funds are in trouble. We'll see how the battle plays itself out soon enough.Also, this afternoon we will get another look at harvest progress from the USDA. There is some rain in the forecast for later this week which has spooked some bears ( also a report is due out ) and that is leading to a pop higher in the grain markets this morning.The Mato Grosso area of Brazil is forecasted to receive some good rains. That will help with overall soil moisture. Planting season is underway down in S. America with traders expecting some big acreage going to beans.That 6 year low in the Brazilian Real has really gotten my attention.

If one just looks at the Major Currency pairs and sees the Dollar a bit weaker this morning, it is very easy to overlook at what has been happening in some of the Emerging Market currencies. It goes back to that same interest rate differential and the fact that there is concern about slowing global growth, especially in some of these emerging markets. I should also note that there has been a large carry trade involved here as well. I want to post a chart of the Brazilian Real for the benefit of grain traders and hog traders.Please note that the currency just made a 6 year low against the US Dollar. Brazilian grain and Brazilian pork are dirt cheap on the global markets compared to US grains and US pork. Most US based grain traders have been in the past, and remain oblivious to such things.

Also, while not an emerging market, the Australian Dollar just matched its yearly low against the greenback. If it moves lower from here, we are talking about 4 year lows. Aussie beef is getting cheaper! It is only a matter of time before high-priced US Beef is going to price itself out of export demand.

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About Me

Dan Norcini is a professional off-the-floor commodities trader bringing more than 20 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section as well as CBS Marketwatch where his views on the gold market can often be found.
He is also an avid beekeeper.

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